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SmartHeat Soars but Catalyst Unclear (Update 1)

Updated from 3:29 p.m. ET to add the company's statement and closing share price.

NEW YORK ( TheStreet) -- Shares of SmartHeat (HEAT) was the top percentage gainer on the Nasdaq, rising more than 45% on exploding volume.

The reason behind the investor exuberance is a bit murky. The China-based company, which makes clean tech heating equipment, reported its fiscal 2011 results after Monday's close, swinging to a deep loss from last year as sales dropped nearly 50% and it recorded heavy charges from goodwill impairment.

The positives appear to be its report of a strong sequential rise in sales in the fourth quarter, and management commentary that it believes a demand slowdown in China will be "temporary." SmartHeat also said it's undertaken restructuring efforts, including staff reductions, and is tightly controlling costs.

Still, a move of such magnitude nearly always has a clear catalyst, and this kind of volatility is worthy of wariness. SmartHeat itself, in a statement release shortly before the closing bell, pleaded ignorance to what was behind the buying.

"[W]hile it ordinarily does not comment on market activity or market rumors, in view of the recent unusual market activity in its stock, SmartHeat confirms that it is not aware of any material corporate developments that could account for the unusual trading activity," the company said.

The stock finished at $7.68, up 46%, with nearly 12.4 million shares changing hands. The issue's average trailing three-month daily churn is a little more than 70,000, according to Yahoo! Finance. Earlier in the session, the shares ran as high as $9.64, and they are now up 180% from Monday's close at $2.74.

SmartHeat completed a reverse 1-for-10 stock split in February when its shares sank below 50 cents each.

For 12 months ended Dec. 31, SmartHeat said it lost $24 million, or $6.20 a share, down from a year-ago profit of $22.7 million, or $6.79 a share. Revenue totaled $65.2 million for the year, down from $125.4 million in 2010. The latest results include charges from goodwill and inventory impairment of $9 million. Operating expenses soared to $43.6 million in 2011 from $18 million in the prior year.

The company said its fourth-quarter operating loss totaled $8.8 million, and that, excluding charges, it would have reported operating income of $3.8 million for the three-month period. SmartHeat said sales came in at $33.7 million for the fourth quarter, more than half its total for the year, and up from $16.6 million in the third quarter. The higher sales resulted from previously canceled or delayed orders being reinstated, and expansion into other areas of China, SmartHeat said.
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